Types of Business Entities to Set Up in Hong Kong

Types of Business Entities to Register in Hong Kong

Starting a new business venture in Hong Kong can be a very exciting time for any entrepreneur. But then comes the next question, what type of business entity should you set up in Hong Kong?

There are several types of business entities to set up in Hong Kong that you can consider, and choosing the appropriate one to fit your business structure is a very important step of the process. You should spend a considerable amount of time carefully weighing the pros and cons of each business entity option. Is the entity going to meet your goals? Is it going to meet the needs and requirements for your business activities? Some other factors you should consider asking before deciding on a type of entity include:

If your business has any risks involve

The nature of your business activities

The size and type of your business

How much control you wish to have over your business

What will the current and future needs of your business be

The liabilities which may involved with your chosen business structure

The amount of capital you require to start your business

The tax implications of your chosen business entity

The start-up procedures, time required and the cost of setting up this business entity

Common Types of Business Entities to Set Up in Hong Kong

Entrepreneurs and foreign investors have the option of choosing from several business entity types, which include the following:

Sole Proprietorship – Which is suitable for small scale businesses, and businesses which have lower risks involved. As the name implies, this business involves only a single owner and because of that, it is an easy entity to set up in Hong Kong. However, the risks involved here would be that sole proprietorships are not considered separate legal entities, which means your personal assets are a liability because they are linked to your business. The advantages of this business option are that:

It is easy to establish

The decision making process is easier

The sole beneficiary gets all the process

It is easy to terminate

The disadvantages however, are that:

It is not a separate legal entity

There is limited capital

The personal liability is unlimited

There is limited life expectancy with this business

Generally low public perception associated with it

Sale or transfer of all or part of the business

Limited Liability Company – This structure is the most common business entity set up in Hong Kong. Companies are incorporated as Limited Liability Companies. The assets of the business owner are protected from businesses risks, because this entity is considered a separate legal entity. To register this business entity in Hong Kong, you would need to register with the Companies Registry under the Companies Ordinance.

This business entity option can either be a private company or a public company, and the company can be limited by shares or by guarantee. The advantages of a private limited company are:

It is considered a separate legal entity

There is perpetual succession

It is easy to raise capital

It has a more positive and professional image associated with it

Transferring ownership is easier

There are tax incentives and benefits

However, the disadvantages of this option are that:

It can be complex to set up

The compliance is on-going

The winding-up procedures are complicated

There are disclosure requirements

Partnership Entity – Which is a business entity structure allowing for two or more people to share in the ownership of the business. The share structure of this entity allows the individuals involved a greater ability to raise the funds they need to start this business. In a partnership, both or all parties involved will be liable for the actions of other partners in the business. In Hong Kong, Limited Partnerships are the most common option because it offers limited liability to the limited partners. There are two types of partnerships associated with this option, one being general partnerships and the other is limited partnerships. Both options have their advantages and disadvantages associated with it.

Foreign Company Office – Investors and entrepreneurs who already own companies of their own, but are keen on setting up a base in Hong Kong, have the option of doing so by registering as a branch office. With this business entity, the office is considered a subsidiary, or a representative office.

Company

Partnership

Sole Proprietorship

Entity NameAppearances

Company name ended with the word “Limited” or “Ltd”

Choice of Name subjected to CR approval

Choice of Name subjected to CR approval

Capital Contribution

Share capital

Partners contribution

Own contribution

Owner(s) of the business

Company(members / shareholders own ‘shares’ in the company that give them certain rights in relation to the Company)

partners have a share in the capital and profits of the Partnership

Sole Proprietor

Legal Status

Separate legal entity

Not a separate legal entity

Not a separate legal entity

Party that is liable for debts of the business

Company

Partners

Sole Proprietor

Responsibility for management of business

Board of Directors

Partners

Sole Proprietor

Personal liability

No personal liability of individual director or shareholder Liabilities borne by the directors or shareholders are to the extent of unpaid shares only

Limited liability of Limited Partners. Unlimited liability for General Partners (jointly and severally liable with the partnership)

Unlimited liability which can extend to personal assets of the sole proprietor